What’s a worse investment than Cash? Standard Life Managed cash!

Tax is a right bastard and hammers your investment returns, so I saved money into pension AVCs while working. For most people a stakeholder or a SIPP is a better way than additional volutary contributions (AVCs) but in my specific case AVCs are the way to go. I saved pretty much exactly the amount of the 25% pension commencement lump sum (PCLS) in AVCs, at the time in L&G FTSE100:Global 50:50, starting April 2009 after reading this spine stiffening article and figuring I had little to lose anyway.

SP of L&G Gbl Eq Idx FxdWt 50:50 LP Pn (fund 50:50 FTSE AS/Global Eq index)

As a fund that one pretty much matched my investment beliefs at the time

To capture the sterling total returns of the UK and overseas equity markets as represented by the FTSE All-Share Index in the UK and appropriate subdivisions of the FTSE World Index overseas, with fixed asset allocation between the UK (50%) and overseas (50%). The overseas exposure of 50% is divided 17.5% in Europe (excluding UK), 17.5% in North America, 8.75% in Japan and 6.25% in Asia Pacific (excluding Japan).

Although I started with a good chunk in 2009 I believed I would have to liquidate and retire in March 2012  so I switched to cash in the AVCs. Switching doesn’t incur costs, and purely by damn good luck March 2012 was the high-water mark to date.

My retirement date was opportunistic, depending on when a voluntary redundancy package would become available. For someone with a known retirement date, it makes sense to liquidate one’s share holdings 20% each year over the last five years running up to retirement, if you have to turn it into cash to take a PCLS, or are liquidating a SIPP to take an annuity of < 20,000 p.a. FWIW different rules apply if you have a SIPP that would yield an annuity of > 20,000 a year but none of that applies to me.

Now I hate cash as a store of value, but the one thing you do know about cash is that it sits there and doesn’t get numerically any smaller. It’s value seeps away into the night as governments print money and increase the amount of cash competing with your stash to buy the goods and services in the economy, but the number in your account doesn’t go down.

Until, that is, the Pension Trustees in their wisdom decide that the Standard Life Managed Cash Fund is what the cash part looks like.

Pricing Data for Managed Cash G4 Pn S4 (CWR0) – on a bid to bid basis

Now the scale on the LHS is pretty microscopic, nevertheless if I’d taken this out in the blue funk of April 2009 I figure I’d be down 2%. When you compare it against the FTAS it is clearly still a steady pair of hands

comapred to the wild ride of the FTAS

I didn’t get all the benefit of the rise because I didn’t buy my AVCs all in one go in April 2009, though I started then. Nevertheless, I got a 20% leg-up which wasn’t bad for sitting on my backside for three years. You can see that the Managed cash fund is steady as she goes.

Curiously enough, the vast majority of my colleagues, if they are doing AVCs, save in the cash find, because you know where you are ;) To some extent it makes sense because AVC savers are older geezers within 10 years of retirement. The Ermine felt in 2009 a mix favouring shares was worth a go.

Nevertheless, it looks like some rum deal is going on here. I took a look at my Nat West Cash ISA in Quicken.

Bog standard Cash ISA

The key thing to look for is that the trend (numerically rather than in real value) is up. For the simple reason that each month Nat West add a little bit to the account each month; I’ve never taken anything out of this ISA because you shouldn’t ever take anything out of an ISA unless you’re skint. This is still worth less now than when I started in 2009 but life is sometimes just like that, cash is a bear.

Now if Nat West can manage to make the numbers go up a little bit each month, why can’t Standard Life FFS? It isn’t hard, and a gradual downdrift is not right with cash. I don’t have any choice with the AVCs if I want to hold cash, though I may switch about 20% of this to the FTAS L&G index fund. Since there is an uncertain period between 3 and 8 years before I liquidate the AVC, what I’d really like to do is switch into the FTAS fund a bit each month till the halfway point, and switch out from then on. However, as an ex-employee that is a grievous process involving sending letters and stuff, compared to the online switching process while still working. I can probably only make one move every six months…

I still want to know who at Standard Chartered Life, 1has got his hands in the till. Managed Cash is not the way I’d want them to manage the cash!

 

Notes:

  1. my bad, Standard Life thx to Ted for picking that up:)

[...] Funds can’t even manage cash well – Simple Living in Suffolk [...]

Your Natwest Cash ISA has some duration risk and some credit risk. You are rewarded appropriately.
It is not really comparable to a money market fund.

Your SL money market fund is invested in either Treasury bills (sub-12-month gilts) or the closest possible money market equivalents. They’ll make a sub-0.5% return on their assets, and take a management fee which is slightly, or quite a bit, larger than that on all their funds.

If you are locked in to their platform, you’re probably out of options. There are retail unit trust money market funds which at least return your capital, if no more, I used the Royal London one in the past I think.

@Lemondy some fair comment there. When the Pension Trustees shifted the cash option from a Santander deposit fund they said the main reason was that the SL product was covered by the FSCS, and very strongly implied the Santander cash deposit AVC wasn’t, and that this was the specific reason they changed it. The Firm’s AVC funds have had experience of things going titsup before, as some people took a hit from Equitable Life a few years ago.

With the cash ISA I am shielded from the credit risk by the FSCS anyway, given the modest amount, and the account is an instant access one so duration risk is a moot point.

If this FSCS protection is the reason then the insurance is probably worht having. It still begs the question, however, how SL can’t manage to keep the unit price steady, they charge a 0.25% AMC charge (0.75% of the 1% AMC is rebated) in this specific case. 0.25% doesn’t really set the bar that high!

Another reason to hate insurance companies and buy their shares. You could have hedged your SL managed cash find by buying SL equities — they’ve had a good run over the past couple of years :-)

Great post Ermine

To get your money working for you it really can seem like a continuous battle to minimise fees/expenses, taxes and protect yourself from inflation. Everybody out there seems to want a piece of your savings. It really winds me up.

For me though I feel it’s well worth the effort of first preventing the loss of savings before trying to increase them, as if you’re not careful that loss can be a big chunk of any possible gain.

Cheers
RIT

Standard Chartered may be in cahoots with the Iranians but I am not sure you can also accuse them of having their grubby hands in the till when it comes to your Cash AVCs!

1 Oct 2012, 6:15pm
by ermine


@Ted Damn, you’re quite right, my bad – my brain jumped the tracks when writing that :)

I don’t have a beef with Standard Chartered, thanks for picking that up!

[…] just open your SIPP and either leave a lump of cash in it or use a money market fund that is sort of like cash. 4 I would be able to take £3461 as the 25% tax-free lump sum and withdraw the remain £10384 as […]

 

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